One of the great things about credit cards is the variety they offer. Some cards are packed with travel perks, while others give you a whole lot extra as you shop. Some cards are made for maxing out on rewards, while others can be kept quietly in your wallet, ready should you need it in case of an emergency.
As for introductory offers, they provide even more variety. Want to pay down a balance? There’s a card with a balance transfer offer that can help you do just that. Want to boost your points balance? Choose from the vast array of cards with intro bonus points offers. Want to try before you buy? You can try a card on for size free for the first year, with an annual fee offer.
With all that variety on offer, you could easily pick up a card for every need, every occasion and every spending style. But, is it a good idea to have that much plastic in your wallet? While there is no definitive answer regarding how many credit cards is too many, there are ways to tell if the number of credit cards you have is too much for you.
In this post, we’re going to check out seven signs that you should look for if you have a number of credit cards on the go. Even if you just have one or two cards, these signs should tell you if you’re not coping well with credit. From there, we’ll go into what you can do to turn things around as you streamline your wallet – to then look at some top tips for making multiple cards work for you.
If you have a number of credit cards in your wallet, chances are you’re paying annual fees on at least some of them. The amount you pay in annual fees will usually depend on what your cards have to offer. Basic cards, for example, typically come with a low annual fee, or even no annual fee. High end cards – especially those that earn rewards – usually have much higher annual fees.
Why is that? As with most things in life, you pay for what you get. If you want more, you pay more. Credit cards are a business, which means providers charge higher fees on cards that offer more costly extras. The key for you to remember is that, no matter what kind of card you have, you always want more value back than you are paying out in annual fees.
The trouble is, if you have a number of credit cards, it can be hard to keep track of what you’re paying out in annual fees and what exactly you’re getting in return. So, what can you do about it?
|Step 1. Take time to assess each card, taking note of how much you’re paying in annual fees. |
Step 2. If it’s a rewards card, check your rewards earn on that card over the past year. Calculate the dollar value of that earn by working out what you would normally redeem it for.
Step 3. If your card offers perks, familiarise yourself with what perks the card currently offers (they may have altered since you applied for the card). Then work out the dollar value of the perks you have used in the past year.
Step 4. Compare the dollar value of your rewards earn and perks used in the past year with the amount paid out in annual fees.
Step 5. If you’re paying out more in annual fees than you are getting back in value, it could be time to close that card account, or rethink how you could use the card to get more value from it.
After following those steps for each card, you should have a clearer picture of where you stand. Bear in mind, however, that there is value to be found outside of rewards and perks. You may find a card valuable simply as a tool for accessing credit. The question to ask yourself is, can you find an equally valuable tool in a card with a lower annual fee – or perhaps no annual fee at all?
Unless you’re strict with your spending, the temptation to spend may be harder to resist when you have a number of credit cards in your wallet. Unlike your debit card, which only allows you to spend what funds you have available in your linked everyday account, your credit cards offer much greater freedom to spend.
As you window shop in your local Westfield or browse online during your lunchbreak, it can be all too easy to get swept up in the purchase, buying something you don’t really need, simply because you know you have a credit card that will cover it. While doing this once in a while probably won’t do too much damage, if you have a tendency to put impulse purchases on your credit card, having a bunch of credit cards at your disposal may not be the best idea.
How do you know if you’re overspending? If you can’t clear the balance on all of your cards at the end of the month, that would be a good indication you’re spending more than you should. Similarly, if you’re having to do without elsewhere in your life simply to cover your impulse credit card purchases, it may suggest you have a problem keeping your cards in check.
If all you need is the wakeup call that your spending has gone a bit wild, you may be able to keep your cards – as long as you keep them on a tight rein. On the other hand, if you know you’ll struggle to change, cutting down on the number of cards you have and reducing your credit limits could be another option, as could placing spending limits on each card.
Most credit cards offer a certain number of days interest free on purchases. While this is not the most flashy of features, it does allow you to access credit, while you keep your interest costs at zero. But, you need to play by the rules to make it work for you. The most important of those rules, is of course, to pay off your closing balance by the statement due date.
If you have a number of credit cards, you need to keep on top of both your spending and your repayments. Should you overspend on your cards, you may struggle to pay them off at the end of the month. Similarly, if you’re not super organised, you may forget to make a repayment. As a result, you will start paying out in interest – and fees in the case of a late payment.
When you fail to pay your full closing balance by the due date, two things happen. First up, the balance that carries over starts attracting interest at the card’s standard rate. This could be anywhere between 8% and 22% p.a. Secondly, any new purchases you make will not benefit from the card’s interest-free days, and will instead start attracting interest from the day they’re made.
Whether you’re carrying over a balance because you’ve overspent, or because you’re struggling to keep track of each card’s repayment date, the interest you’re paying will cancel out much of the card’s value. If you can’t keep your spending under control and manage your repayments in a way that allows you to clear your balance each month, it could be time to lower your card count.
Let’s look more closely at the problem of missing repayments, as this can be especially problematic when juggling multiple cards. We’ve already discussed the way in which missing repayments can result in higher interest costs, so let’s look now to other negative outcomes of this habit.
First of all, fees. Most credit cards charge late payment fees to cardholders who fail to make their repayments by the due date. This fee can range from around $9 to $35, depending on the card. While those numbers may not seem too bad in isolation, if you have five cards that you miss making repayments on, each with a late payment fee of $25, you’ll shell out $125 in one month alone.
But, that’s not the only issue you may have to deal with after making a repayment late. If your repayment remains unpaid for 14 days after the due date, you card provider will report this to the credit reporting agencies, and it will be recorded on your credit report. Not only will this result in a hit to your credit score, future lenders may not look on the action too kindly when you apply later on down the line.
And if you lose track of the repayment completely? Missed payments of $150 or more that remain unpaid for more than 60 days will be recorded on your credit report as a default. This black mark will lower your credit score further, making it even harder to get approved for credit in the future.
If you notice you’re missing a few repayment dates here and there, you could set up a direct debit to ensure they get paid on time – although you will need to make sure there are sufficient funds in your everyday account to cover them. If that doesn’t work, cutting down on the number of cards you have could make the task over covering monthly repayments more manageable.
While it’s probably not your most favourite thing to do with your time, checking over your transactions is an important part of being a responsible cardholder. With multiple cards to keep track of, however, this process can be both time consuming and difficult to manage. Well then, why is it so important?
Keeping a close eye on your card transactions helps you avoid many of the issues mentioned previously. Checking your transactions regularly, you will know exactly how much you’ve spent and how much you can afford to spend, which can stop you from overspending. Keeping on top of your accounts can also help you to avoid events that will result in fees, such as late payments.
Over and above this, though, is the way checking your transactions can help you to detect fraudulent activity on your card. By combing through each transaction, you can spot those that shouldn’t be there. If you don’t take the time to do this, fraudsters could continue to steal money from you, month after month, year after year.
If you’re drawn to credit cards for their extras, you may have a number of cards in your wallet with all sorts of lovely perks, just waiting to be used. Whether your card lets you stretch out in Business Class with upgrades on flights, or allows you access to more comfortable travel thanks to airport lounge passes and transfer services, there’s a lot to be said for the perks on offer these days.
But are you actually using those perks? Chances are, in the past year your work, travel and social habits have changed somewhat. As a result, you may not be getting the chance to use your extras as you normally would. Without making use of your extras, you are paying a premium to keep those cards in your wallet, while get very little value in return.
Time to take stock then. Look at the extras offered on each card in your wallet, and consider whether you’re likely to use those extras in the coming year. To make the task easier, it can be helpful to make a spreadsheet outlining each card’s extras, and the way in which they need to be used. You can use that info to choose which cards to cancel, and then, to track and make use of the extras on the cards you keep.
As you know, when you apply for credit, the provider checks out your situation to decide whether or not to approve the application. Taking into account the eligibility criteria of the product you’re applying for, the provider will assess your income and assets, your debts and your level of risk, and perhaps most importantly, your credit report.
All of your dealings with credit are contained within your credit report. Each time you apply for a credit card, that goes on your credit report. Each time you default or miss a repayment, that goes on your credit report. With each credit enquiry and each misstep, your credit score will take a hit. And, if you have multiple cards you’re struggling to manage, that hit could be significant.
While this will affect your ability to get approved for more credit next time you apply – whether that’s another credit card or a personal loan, car loan or home loan – the number of credit cards you currently have can also affect your chances of being approved. How so?
Bound by responsible lending standards, credit providers need to take into account the level of risk for each potential borrower. When you apply, your risk will be partly determined by the total credit limit you have available to you. Even if the balance on all of your credit cards is at zero, the lender has to judge your ability to repay the credit you’re currently applying for, based on each of your credit cards being at its limit.
Another ‘risk’ for potential providers comes from multiple applications for credit. If you’ve applied for a number of credit cards within a short space of time – to take advantage of intro bonuses, for example – the provider may conclude you are a risk, because it looks like you are desperate for credit. Your application may be declined as a result.
For some cardholders, even one credit card is too much to handle, while for others, keeping on top of five or six cards is a breeze. It all comes down to what you need from your cards – and how efficiently you manage them.
Think you may have taken on too much with the cards you have in your wallet? Perhaps your situation has changed and you’re now realising some of your cards are no longer working for you? No matter your reason for streamlining your wallet, here’s how you can make it happen.
|TIP: If you have a number of cards you want to close, but still have balances owing, you could consider applying for a balance transfer card. Again, this will mean applying for a new card, but it could allow you to save on interest and fees on the cards you close, to then pay off what you owe much faster. Just be sure to close the old accounts, and avoid spending on the new card until you’ve paid off the transferred balance.|
With your newly streamlined wallet, you may still have a few cards on the go. Hopefully now though, they all suit your needs and provide value in the way you use them. So, what do you need to remember going forward? Here are our top tips for managing multiple cards so you can keep your costs down and your card accounts in good shape.
✓ Know how much you can spend
Start by creating a budget. There are plenty of apps that can help with this, so it doesn’t need to be too much of a trial. With your budget in hand, you will know exactly how much you can afford to spend on your cards.
✓ Know which cards should be used for which purchases
Making the most of your cards may involve channelling certain types of spending towards them. Tag each card so you know what each one works best for, particularly if you have additional cardholders on your accounts.
✓ Make use of card tools
Get to know what tools your cards offer, and make use of those tools to stay on budget. Examples of useful tools include app-activated spending limits and card locks.
✓ Set aside time to check your transactions
Set aside an hour each week to check through your transactions on each card. Doing this will allow you to keep track of your spending, as you keep an eye out for fraudulent transactions.
✓ Track your extras
Use the spreadsheet you created to detail each card’s extras when streamlining your card collection, to keep track of what extras you have available to you. Keep this spreadsheet up to date as your cards change.
✓ Ensure each repayment is made on time and in full
Set up a direct debit for each repayment, or set a reminder on your calendar a few days before each repayment is due. Always pay your closing balance in full each month to avoid paying interest and thus lowering the value of your cards.
✓ Carry out a regular health check
Over time, be sure to reassess both your needs as a cardholder and the way in which you are using your cards. Be aware your cards’ offering may also change, altering their value to you.
Pauline is a personal finance expert at CreditCard.com.au, with 8 years in money, budgeting and property reporting under her belt. Pauline is passionate about seeing Aussies win by making their money – and their credit cards – work smarter, harder and bigger.
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